Marty Searing
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Low Documentation Mortgage

Low Doc loans are loans that require less income documentations. There are basically three types of Low-Doc mortgages, Stated Income loans, bank statements as incomes, and No Ratio loans.

Stated Income mortgages require the loan applicant to disclose his income on the loan application, but do not require any income documentations, such as paystubs and W2’s, to support his "stated" income. However, the lender banks will verify the place and length of the applicant’s employment with the employer.

No ratio loans were designed mainly for people with outstanding credit who have a hard time proving their income. You will list your employer on the 1003, or loan application, how long you worked there, the employers address and phone number, and your position but you will not list anywhere on the application how much your actual income is. There is a rate increase associated with this loan due to the obvious risk a lender is taking on by not verifying how much money a person makes. The lender will verify your employment though by contacting your employer and verifying your position, how long you have been there and what your probability of continued employment there is. If the lender is unable to verify your employment they may not approve the loan or allow you to close until they can verify the employment.

For a contract person who has moved to a new location might be best suited for No Ratio program. The stated income program might not work for this type of situation because the underwrite might ask and deny the loan if the underwrite decides that it is unreasonable to make the noted income when the borrower's business is based on referral and he/she has just moved to a new location

Another type of Low Doc mortgage is the "bank statements" loan. Some banks only require 6 months bank statements of the loan applicant's personal account to estimate income. In "bank statements" mortgage, the average deposits over the past 6 months are deemed as regular income. Large, extraordinary deposits are usually excluded in the calculation of income.

Low documentation loans are great for people that are receiving income that is not documented such as tips. Business owners and contractors also do not report the majority of their income on their tax returns for tax purposes. In both instances it appears that the borrower is not making as much money as they truly are. The use of limited or low documentation will help these people qualify for loans.

Often times a Verification of Employment (VOE) for employment and income requirements, and a Verification of Deposit (VOD) for asset requirements can be a more stream-line, less paperwork-heavy documentation type. In the same regards, a Verification of Rent (VOR) can also replace the need for stacks of cancelled rent checks.


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